By Stefanie Knirsch and Richard Hoffmann/Dezan Shira & Associates

In August 2006, China and Hong Kong signed an arrangement that provides certainty and preferential tax treatment between the two tax jurisdictions, known as the “Arrangement for the Avoidance of Double Taxation on Income and Prevention of Fiscal Evasion”.

Since 1995, Hong Kong has been seeking to negotiate a comprehensive double taxation treaty with China in order to clarify the tax rules and ease the tax burden for the growing number of companies based in the territory that are doing business with the mainland. An agreement signed in 1998 permitted Hong Kong based companies that maintain manufacturing operations in China to split their profits equally between the two jurisdictions. However, the rules did not apply to companies in the service industry and excluded regulations on withholding taxes on interest, royalties and dividends.

The August 2006 agreement extends the scope of the original agreement and came into effect with respect to Hong Kong taxes from the year of assessment beginning on or after April 1, 2007. With respect to mainland taxes, it will apply to the taxable year beginning on or after January 1, 2007. (more…)

By Eugenia Wu/Dezan Shira & Associates

SHENZHEN, Sept.28 -The Shenzhen tax bureau has changed its IIT declaration systems for companies with high payments. The two new systems – IIT withholding and Yi Cai Shui (easy tax) – came into effect in July, 2007.

The Yi Cai Shui system transmits data from IIT withholding to the local tax bureau. The IIT withholding system holds all personal information separately for local and expatriate staff. Different from the old system, staff ID number will be verified by the IIT withholding system. Any incorrect combination of the digits will be blocked from the transfer. In addition to a staff ID number, the locality of the staff member’s hukou must be provided.

For expatriates, the tax bureau has increased its requirements on IIT declarations. Instead of only a passport number and salary consideration under the old system; now the place and date of birth, nationality, and mailing address of origin are all required. Expatriates with positions not only in China but also abroad will need to list the details of employment respectively. Moreover, the location of payments, the date of entering the Chinese mainland for the first time, duration of the local employment contract, and the anticipated length of stay in China and anticipated date of departure need to be declared. The number of days in China within a given month is necessary and relevant for the new IIT formula calculations. (more…)

The time of year when autumn turns leaves gold sees many Western traders also pack their bags, head for the airport with China visas neatly stamped in their passports. Yup, it’s Canton Trade Fair time again.

And two months later, it’s time when phones start ringing at the Guangzhou offices of Dezan Shira & Associates, with traders from far and wide asking for advice on what to do as “orders placed don’t seem to have arrived despite my money transfer going through.”

Canton, (actually the old colonial name of Guangzhou, although the title has stuck for the trade fair) sees the golden leaves of autumn bring two species out into play - foreign buyers, many of them small family businesses, meeting the China salesmen at the Canton Trade Fair.

So, how can you prepare yourselves to ensure you get what you buy, presumably at the right price, and ensure, without spending any serious money, that you will in fact receive the goods you have negotiated and paid for? (more…)

China announced a new policy restricting processing trade in an effort to reduce a growing trade surplus. As approved by the State Council, the Ministry of Commerce and the General Administration of Customs jointly issued Announcement No. 44 introducing a new catalogue of restricted commodities on July 23.

The new policy, which took effect August 23, restricts the processing trade of 1,853 products, accounting for 15 percent of the total list of commodities held by customs. The newly restricted products included plastics, furniture and textiles and other labor-intensive industries.

According to the Ministry of Commerce and China Customs, enterprises engaged in the production of the affected products are required under the new policy to have guarantee deposits in the Bank of China while registering their processing trade contracts with the authorities. Those deposits are required to be equal to half or the total amount of import tax payable (including custom duties and import VAT) on bonded import raw materials.

The new policy targets high polluting and energy consuming industries in China’s developed eastern regions, including Shanghai, Jiangsu, Zhejiang, Beijing, Tianjin, Liaoning, Hebei, Shandong, Fujian and Guangdong. Enterprises in these regions which did not gain export rights as of July 23, 2007 are not allowed to engage in processing trade of products under the restricted category. (more…)

There was an interesting televised program on Guangzhou today in which three interns gave their experiences of working for foreign companies in Guangzhou. One of them is Artur Jakubas, a Polish student currently undertaking an internship with Dezan Shira & Associates in the firm’s Guangzhou office, as part of his masters thesis at the University of Applied Science Muenster in Germany. Artur was joined by two American interns, one of whom is working with the U.S. Consulate in Guangzhou.

It’s always good to see tomorrow’s China expats express their views and experiences, and the interview (in both English and Chinese) goes over a number of issues - why they chose Guangzhou rather than Shanghai (the weather and the girls are prettier they waggishly suggest) as well as more insightful aspects of working as an intern in one of China’s wealthiest yet less glamorous cities, what they’ve learnt, why they’ve chosen particular courses, and their hopes of gaining employment in China after graduation. It’s an interesting view and you can view it here.

For interns looking for positions within Dezan Shira & Associates please email HR@dezshira.com with a full cv and ideal location in China.

The tiny ex-Portuguese colony of Macau, just tacked onto South China and a 40 minute jet foil ride away from Hong Kong, is undergoing some serious investment and opportunities abound for the international hospitality and services industry. Now is the time, when all the hype is on Beijing, to take a look at what is happening in China’s newest SAR - having returned to the mainland in 1999.

August 28 sees the Venetian Macao Resort Hotel - the second largest building in the world - open. Supporting the Venetian Casino, 3,000 suites - yes that’s right, suites - “the largest standard rooms in the world” will open, giving tired shoppers from the mainland a chance to relax after poring over 350 shops, 20 restaurants, a massive lagoon with 51 gondolas to ride on from the real Venice in Italy, and a St. Marks Tower replica. The old Chinese concept “Windows of the World” - recreating internationally famous landmarks so the Chinese could get an idea of the original without having to travel - has arrived, Vegas style. The complex theater is due to have a permanent troupe of Cirque de Soleil performances, while by the year end the Venetian will boast it’s own port with direct ferries to Hong Kong. (more…)

Guangzhou Baiyun International, China’s third busiest airport after Beijing and Shanghai, is expanding its efforts to become an international air cargo and logistics hub in prosperous South China.

China Daily reported that international logistics companies will play a larger part in reaching the goal, according to Liu Zijing, president of the Guangdong Airport Management Group Co Ltd.

Liu said that the airport would soon introduce a safety and credit cargo agent system to offer better services to companies from around the world.

The airport signed two agreements with international cargo giants late last week. Schenker China Ltd, one of the world’s leading logistics companies, will ship more than 20,000 tons of cargo through the facility from 2007 to 2008, some 5 percent of the airport’s total. Bax Global, part of the new global logistics powerhouse of DB Logistics, said it will also increase its volume. (more…)

Provincial tax authorities recently announced an amendment to the regulations that govern tax free contributions to basic pension funds, basic medical insurance, unemployment and housing funds (Cai Shui (2006) Circular 10). Effective July 1, 2007, provincial supervision bureaus have put in place new regulations on housing fund contributions for Beijing, Shanghai and Guangzhou.

When it was issued last year, Cai Shui (2006) Circular 10 set a cap on the basic housing fund contributions actually made by the employer and employee that can be exempted from PRC Individual Income Tax (IIT). This is 12 percent - for the employer and employee contributions respectively - of an individual’s average monthly salary of the prior year, of the given location of the employee’s place of work, which is further capped at three times the city average salary of the previous year. The regulations also stated that employee contributions to the fund would be treated as deductible for PRC IIT purposes. For the basic housing fund, any part of contributions made in excess of the statutory limits specified is treated as normal salary and must be treated as subject to PRC IIT. 

The new housing fund requirements are as follows: (more…)

AirAsia launched its Shenzhen service today with nonstop flights from Kuala Lumpur and Bangkok, the first routes into mainland China for the Malaysia-based budget airline founded in 1993.

Group Chief Executive Officer Dato’ Tony Fernandes Berhad of AirAsia said, “We have continued to create history by introducing flights to untapped markets as we have always believe in developing new routes and markets. AirAsia’s move to fly to Shenzhen has indeed facilitated more travelers from the Pearl Delta region to tap into AirAsia’s extensive Southeast Asia network and vice-versa. As the first special economic zone in China, Shenzhen has risen to become one of the economic powerhouses of China as well as one of the largest manufacturing base in the world.”

Behard said that AirAsia had sold more than thirty thousand seats for Shenzhen and believes that the first foray into China presents tremendous potential for the company to tap into the vast China market. (more…)

Foreigners are now limited to buying one home for personal use in Shenzhen. The rule, which came into effect Wednesday, states that all non-mainlanders, including overseas nationals, Chinese citizens resident overseas and residents of Hong Kong, Macau and Taiwan, will be allowed to buy property only if they sign a guarantee that the house is their own property in Shenzhen and is for personal use.

According to the South China Morning Post, the rules will only affect new buyers. Non-mainland homeowners who already have more than one property in Shenzhen are grandfathered in and will be allowed to keep them.

According to experts the paper interviewed, the new regulations - the city government’s first real measures to limit foreign investment - are unlikely to have a serious impact on Shenzhen’s real estate sector. (more…)